The e-commerce giant Amazon has been in the dropshipping industry since 2011. Its direct sales reportedly accounted for 34 percent of the product sales this year alone. Now, if this e-commerce giant can do it, online retailers have the opportunity to do the same.
Dropshipping is flexible because you don’t need to physically keep the inventory and only pay at the time of sale. But did you know that there are 9.1 million online retailers worldwide? The market is very competitive! So how can you run a successful dropshipping business in a challenging e-commerce environment regardless of the demands of your online customers?
Numerous small-medium business owners take on dropshipping as a separate model or in addition to direct shipping from their physical stores. Here in this blog post, you will learn more about what dropshipping is, its importance for SMEs, and its pros and cons to gain a better understanding in case you’re thinking of starting a dropshipping business.
What Is Dropshipping?
Dropshipping is ultimately a supply chain norm where the vendor is not involved in inventory and supply management. Instead, the products are delivered directly from the manufacturer’s warehouse to the purchaser. Dropshipping is also known as one of the most widespread e-commerce business modules that allow e-commerce store owners to sell actual products without having a stockroom to stock their goods.
- More than 27% of e-commerce owners use dropshipping as a business model.
- Vendors who sell directly to vendors generate 18.33% more revenue than vendors who rely solely on traditional channels.
- When retailers choose mail orders, they can generate 50% more revenue than if they keep their own inventory.
- More than 23% of online sales are through dropshipping, and this number has been steadily increasing recently.
The statistics above show that dropshipping is a profitable way to do business. Dropshipping is considered one of the most viable ways to make big bucks online. Anyone interested in dropshipping can start their own business only for $20 using free online platforms.
Importance of Dropshipping for Small-Medium Businesses
Dropshipping is a great business model for small-medium-sized businesses that are experts in retailing because they need not to concern about keeping inventory or managing shipments. All they need to do is choose the right seller with the proper process to ship orders. Then they can concentrate on the following:
- Creating a great e-commerce store.
- Drive traffic to the store.
- Find popular products to list in the store.
- Turn the visitors into customers and keep them coming back.
The Pros and Cons in Small-Medium Business
Many individuals start a dropshipping business because they consider it easy. “No problem, out of stock!” they said. The fact is, it’s not “easy.” That has its own problems. However, it unravels many challenges for vendors and manufacturers.
Let’s have a look at the pros and cons of dropshipping in small-medium businesses.
A Small Investment Is Required
Among the finest things about dropshipping business is that you don’t have to devote a lot of money to buy inventory. Companies often have to spend thousands of dollars to buy their products. You don’t buy a product with dropshipping until you sell it and get paid for it. So, dropshipping lets you launch your e-commerce store with very little capital.
The owners do not have to worry about storing the inventory or delivery, as the manufacturer’s delivery partner manages the inventory from production to delivery. This means you can start your business without any investment in a warehouse or thorough information about the e-commerce supply chain. Vendors can also deliver products that necessitate special storage, which is deprived of capitalizing in a fridge-freezer or related storage equipment.
Secure Business Model
All you need to do to initiate your dropshipping business is hire a custom website design service that will provide you with a domain name, hosting web service, a subscription to an e-commerce platform, and site security. In some cases, you can bundle it into one package for one monthly fee.
You will never have unsold products or cash flow problems because you only buy from wholesalers after identifying your buyers. So if you’re anxious about retailing your manufactured goods, learn how to get a steady flow of customers by starting with dropshipping.
Less Authority Over Order Success And Delivery Times
The manufacturer or wholesaler that does business with you manages the inventory and ships the products to the end customer. When they mess up, customers criticize your products and head towards buying from the competitors. If you want to involve in such a business, ensure you are working with quality wholesalers and manufacturers.
As dropshipping companies depend on third-party suppliers to accomplish orders, they may cede some of their profits to suppliers, and dropshipping involves a small initial investment, reducing competition. So it might be challenging and ask for a lower price to make a sale.
Poorer Client Relation
You’re solely responsible if the supplier delays the delivery of the products, delivers the wrong products, damages the products, or affects the customer’s order by any means. We have already mentioned this above. But it goes further than that.
You cannot uphold the individual approach suppliers handling their inventory can offer their customers. If you don’t monitor your inventory yourself, you won’t be able to solve customer problems quickly. Instead, it would help if you dealt with suppliers to solve customer problems. This act of helping customers as an intermediary can cause problems for suppliers.
Now it’s your turn to roll up your sleeves and jump into dropshipping the hang of things. It may start small, full of hesitation and distress of failure, but all successful SMEs start from the same place. You can do it too! Create a strategic plan, assess prospects and expenses, and start your own plan to achieve your business goals.
Jennifer David is a logo design specialist with more than 5 years of experience in promoting and marketing brands in the digital world. She loves to read and share his digital marketing experience with the rest of the community.